Three San Francisco ridesharing startups have been hit with a cease-and-desist letter by the California Public Utilities Commission, the state regulator that deals with public transportation-related issues.

Lyft, Sidecar (which Ars profiled earlier this year), and a third similar company, Tickengo, received the letters on August 15, 2012—however, the companies did not announce their public response until today. The announcements on their blogs came as the result of a story published late Sunday by the San Francisco Chronicle.

These firms had previously argued that because they merely are a ridesharing website that takes “donations” rather than “fares,” they are not taxi companies. As such, according to the companies, they should not be subject to traditional taxi regulation. State regulators clearly disagree.

Paul dismissed the letter, saying that the company is still in "conversation" with the CPUC.

"The steps that it takes to do something, to take an enforcement action, require a lot more from the PUC," he added. "This letter is the letter that they usually send to those limo guys that hang out at the airport. This is the kind of letter that they might send to someone like that, because they're operating a limo company without a license. You're talking about a bureaucracy that knows how to do one thing, which is regulate."

Paul characterized his own company as being in line with other Bay Area startups, including Airbnb or Taskrabbit.

"At some level this is regulatory conversation. This is a conversation about public policy and how do we want to organize our cities and how to organize our information technology," he said. "This is a conversation about the role of peer-to-peer and the sharing economy and what the appropriate rules are when we have services like Airbnb and Taskrabbit and others that are enabling individuals to do things that they could never do before. We built this system to be 100 percent legal and we're confident that once regulators and politicians understand what we're doing that they'll agree."

No legal response for now

In a similar blog post also on Monday, Lyft’s co-founders also denied that the company was in the wrong.

“From the beginning, we carefully designed the service to be in full compliance with the law,” wrote Logan Green and John Zimmer, the company’s two founders.

“Additionally, we’ve gone above and beyond current requirements by offering a first-of-its-kind $1 million excess liability insurance policy to give both drivers and passengers peace of mind. We took the letter as an opportunity to open a conversation with the CPUC and explain what we’re all about. Since receiving the letter, we’ve had productive conversations with CPUC staff about how these services greatly benefit the local community and complement existing alternatives. The Lyft community will continue to operate as we engage in this dialogue.”

So far, all the companies are continuing to operate.

"We have not received a response yet," said Terrie Prosper, a spokesperson for the CPUC. "The law provides various enforcement tools—fines, filing criminal complaints and possible imprisonment, vehicle impoundment, coordinating with other law enforcement agencies, etc."

116 Reader Comments

I really hope the California Public Utilities Commission doesn't win these. It's ridiculous that an app that merely allows users to communicate efficiently about a specific topic would be in violation with the P.U.C. section 3571.

" We built this system to be 100 percent legal and we're confident that once regulators and politicians understand what we're doing that they'll agree."

Yeah, good luck with that. Until you pay an exorbitant amount of fees, that may well bankrupt your start-up then you will not be allowed to operate.

What I really love about all this is, especially in California, is the total hypocrisy of government wanting it's citizens to cut oil/gas usage and cut down the traffic in the cities. However, when someone comes up with a plan...ILLEGAL, ILLEGAL is all they cry...until they get paid, I am sure.

I am not at all sure how CPUC sees these companies as "charter-party carriers".

Unless I seriously misunderstand how they work, none of the companies mentioned rent, lease, sell or otherwise provide vehicles to drivers who in turn are not directly employed or even contracted to the companies in the first place.

It is also possible that I do not fully understand the term "charter-party carrier" as it is being used here but unless I've missed the bus on all three of those points I just cannot fathom how CPUC sees any angle for involvement. Perhaps there is a lobby at work here?

I read the headline and assumed that the state was arguing that there was something fundamentally illegal about how these apps operate. Instead, it appears to be purely a clerical debate about, ironically, a tax.

From the little I know, it appears that one would be hard pressed to say these apps are breaking the letter of the law - though they very well may be breaking the spirit of it. Regardless, if that is the case - it would (and should) require a legislative change as opposed to a cease and desist that very likely won't hold up.

In this political climate, I wonder how long before some group starts the "but it eliminates taxi jobs!" chant.

Donations. Right. I once asked a pilot how those whore houses in rural Nevada were able to find pilots licensed for air charter. Easy. The whore houses weren't running a passenger service. You gave the pilot a donation.

I dunno - just calling the money your drivers take "donations" instead of "fares" doesn't automatically they aren't driving taxis. And making a peer-to-peer network for riders and drivers to find each other, rather than having dedicated operators, also seems like it adds up to the same thing. I'm open to argument on the topic, however.

I really hope they find their legal ground. I live in SF and these new services like SideCard and Uber are so much better than taxis. The taxi situation in SF is terrible. I don't think anybody uses these services because they are cheaper than cabs. They are more convenient, more reliable and deliver far superior customer service. And you don't have to listen to some cab driver bitch about how there are too many cabs in town after you've been standing on street corner trying to flag one down for 1/2 an hour.

For the same reason gourmet food carts create an unfair advantage to local restaurants by not having to pay rent and utilities, creating the administration layer of an on-demand transport carrier while not owning the cars and basing your revenue on "donations" doesn't pass the sniff test either. "I'm not a pimp, I'm just providing the conduit for two people to engage in a business transaction for a voluntary 'donation'."

Please.

Withhold enough "donations" and you're not going to be given access to the product.

For the same reason gourmet food carts create an unfair advantage to local restaurants by not having to pay rent and utilities, creating the administration layer of an on-demand transport carrier while not owning the cars and basing your revenue on "donations" doesn't pass the sniff test either. "I'm not a pimp, I'm just providing the conduit for two people to engage in a business transaction for a voluntary 'donation'."

Please.

Withhold enough "donations" and you're not going to be given access to the product.

So in the interest of this arbitary metric of "fairness" we should put restrictions on competitors?

Even in states without limited cab medallion counts or easy access for new entrants, there are regulations and fees that need to be taken care of. These sites allow guys to operate cabs and circumvent requirements, like having real commercial insurance. A standard personal lines carrier would never pay a claim to a passenger on a ride for hire.

And a donation is not a donation if it's income to the other party. It's a way to try and avoid paying taxes.

I haven't read the background yet. Do these companies own the vehicles? If so, I don't see how they have a leg to stand upon, legally. Doesn't matter who's driving - they're providing transportation opportunities through their vehicles.

If, however, they merely hook up people who are willing to share rides with their own private vehicles, then this truly is a communications service and the State can go pound sand, IMHO.

What's ridiculous is that the state has ANY involvement in private contracts between individuals. The state's defenders claim (mostly with a straight face) that these laws are to "protect the public." Anybody with a brain knows that the laws are designed to protect companies already in business. The effect is to protect their profits and keep prices high, as well as stop any new business models which could be a threat to them. Government regulations are always sold as something to protect us, but they almost always about protecting the needs of special interests who have organized themselves to buy off politicians. (As someone who spent 20 years as a political consultant, I know quite a bit about this.)

Even in states without limited cab medallion counts or easy access for new entrants, there are regulations and fees that need to be taken care of. These sites allow guys to operate cabs and circumvent requirements, like having real commercial insurance. A standard personal lines carrier would never pay a claim to a passenger on a ride for hire.

And a donation is not a donation if it's income to the other party. It's a way to try and avoid paying taxes.

Yeah, at first I thought ridesharing referred to ridesharing, you know, "I'm heading that way, so you can come too, and if you want to help pay for the gas that would be cool." Then I read the blog post jeremister linked above:

Quote:

When this neighbor has spare time he would be pleased to help others in his area to get where he needs to go in exchange of a contribution that will allow him to reimburse the cost of his car.

You know, that sounds a lot more like private individuals running a part-time taxi service. And a 'contribution' that helps someone 'reimburse the cost of his car' is usually referred to as 'income' that should be taxed.

There's a reason taxis are regulated. There's a reason the income from running a taxi service is taxed. Maybe the state needs to allow more flexible registration, and maybe the licensed taxi services are missing a trick in terms of making their service more accessible. Sure. But the solution doesn't involve doing an end-run around the whole process.

Briefly looking at the websites, it looks like these companies screen and approve the drivers (and, in at least one case, offer insurance for the ride)? If so, I think that's different from merely providing a service connecting drivers and passengers.

I'm all for finding ways to carpool and the like, but I can see how this is becoming more like a taxi dispatcher. At the very least, it's probably not a clear cut case.

What's ridiculous is that the state has ANY involvement in private contracts between individuals. The state's defenders claim (mostly with a straight face) that these laws are to "protect the public." Anybody with a brain knows that the laws are designed to protect companies already in business. The effect is to protect their profits and keep prices high, as well as stop any new business models which could be a threat to them. Government regulations are always sold as something to protect us, but they almost always about protecting the needs of special interests who have organized themselves to buy off politicians. (As someone who spent 20 years as a political consultant, I know quite a bit about this.)

It's also a way for cabbies to avoid parts of town they don't like since these aren't fares, but shared rides. Nice way to cut service to and from minority neighborhoods.

Sounds like axe-grinding to me, or maybe trolling. As far as I can tell, no one has said anything about minority neighborhoods.

Concerning "bad" neighborhoods (not the same thing at all!) the "rideshare" people don't need to go anywhere they don't want to. And, no matter what the law might say, neither do cabbies. They can simply be on a break, or not hear the call, or just picked up a fare, or any one of a number of excuses.

Any of which can get them fined if it's a spot check by a local taxi commission. Service to all neighborhoods is a requirement for most licensed cabs. Same thing for deciding not to "share a ride" with a minority member once they show up on site. Discrimination and only serving affluent areas have always been two very important negatives fought by taxi commissions.

That's just one more reason why these services being regulated is fine with me.

...meanwhile, gas price just hit a ridiculous $4.35 regular in Cali. Do these regulators not know what's going on in their state? I am really hopeful technology will outpace these old morons whose are too comfortable with their consistence salaries to care about anything else.

If these app start to use bitcoin, what's going to stop people from offering these service? Nothing. That's why I'm optimistic about technology.

I'd be very willing to register "standing" trips, e.g. to and from work, and some special trips, e.g. from my house to the giant doctors' building downtown and give people completely free rides, provided:1. There is a small registration fee ($5?) to sign up to be a rider, that must be paid by credit card2. The rider pays any fee charged by the app provider3. There is an eBay-like reputation system, e.g. "Negative feedback: throws up in the car," or "bruises ribs with pistol."

Item 1. means the app provider knows, with a fair degree of certainty, who the riders are. Might have to do the same thing for drivers.

Item 2 puts the payment where the benefit is. Probably the fee would only apply if the rider is hooked up with a ride.

The reputation system must apply to both drivers and riders.

I'd be willing to drive people free, but it'd be really neat if I could get a free ride for every ride I gave. That would allow me to save money from time to time. As long as the people getting rides from me and the people giving rides to me aren't the same, it might not be barter.

Or, I could just take this message over to the Patent Office, hand it in with a filing fee, and get rich suing people who actually try it. {sigh}

Any of which can get them fined if it's a spot check by a local taxi commission. Service to all neighborhoods is a requirement for most licensed cabs. Same thing for deciding not to "share a ride" with a minority member once they show up on site. Discrimination and only serving affluent areas have always been two very important negatives fought by taxi commissions.

That's just one more reason why these services being regulated is fine with me.

What's ridiculous is that the state has ANY involvement in private contracts between individuals. The state's defenders claim (mostly with a straight face) that these laws are to "protect the public." Anybody with a brain knows that the laws are designed to protect companies already in business. The effect is to protect their profits and keep prices high, as well as stop any new business models which could be a threat to them. Government regulations are always sold as something to protect us, but they almost always about protecting the needs of special interests who have organized themselves to buy off politicians. (As someone who spent 20 years as a political consultant, I know quite a bit about this.)

Yeah, cause who cares if that roofing company didn't do a proper job and was revealed in inspection.

I'm not saying you have a case, it just mean we should just kill all of it either. Therein lies the problem with everything, where do you draw the line.